MercoPress. South Atlantic News Agency

Brazilian business and unions blast monetary policy.

Brazilian business organizations and trade unions bitterly criticized the Central Bank's monetary policy which last week raised the basic interest rate, Selic, for the sixth consecutive time, to 18,75%, considered the highest in the world.

Businessmen and economists warned that extremely high interest rates threaten the Brazilian economy growth and cautioned about insisting with this instrument to curtail inflation which could end drying up business and consumer confidence.

Paulo Skaf, president of the all powerful Sao Paulo Industry Federation, Fiesp said the time had come "to coordinate efforts of all productive forces to fight high interests and taxes".

Union leader Luiz Marinho stressed that "we're facing a paralyzed government, hostage to speculators with a painful and recessive policy for the working class".

"Government is obsessed with keeping the 5,1% inflation target, but at this rate and since prices will continue to increase because what is needed is a deep administrative reform, the Central Bank will have to take the basic rate to 29%", blasted Carlos Borges president of the Sao Paulo Commerce Federation. "The time has come to change the integration of Copom (Central Bank Monetary Council) because it's punishing production and jobs", added Mr. Borges.

Lately there have been insistent rumours that some of the more "conservative" Copom members could be replaced, but Central Bank observers are not so convinced.

Copom receives instructions from the National Monetary Council, CNM, made up of the Finance Minister, Planning Minister and president of the Central Bank, which actually sets monetary policy and objectives.

"This means that Copom simply adapts the Selic rate to the targets, and CNM members seem convinced that the Brazilian economy has grown consistently, with a more resilient inflation, and therefore the need for higher interest rates", said Rodrigo Rivera.

"What seems more rational is for a "technical stop" to assess monetary policy effects in the six month period of consecutive increases", added Mr. Rivera. "There's a limit to what the economy can keep expanding with these rates".